Image for Brazil reduces poverty but industry feels the strain

It is a paradox haunting Brazil’s economic-policy makers - ordinary people have never had it so good, but the country’s industry is facing its toughest times yet.

Evidence of the success of Brazil’s anti-poverty programmes is fighting for space in the local headlines with dire warnings from manufacturers about the currency’s remorseless rise.

And while consumers have more disposable income, domestic production of the goods they want to buy is lagging behind, boosting imports instead.

The International Monetary Fund says the Brazilian economy expanded by 7.5% last year, with growth of 4.5% expected in 2011. But there is concern the economy could need rebalancing.

“Brazilian growth is still being driven by consumer spending and manufacturers are being squeezed by the strength of the real,” says Capital Economics senior emerging markets economist Neil Shearing.

So why are Brazilians willing to spend at a time when much of the world is still in tentative recovery mode after the global recession?

Greater equality

The country’s consumer boom is partly the result of long-term economic policies now bearing fruit.

Since the start of the Real Plan in 1994, which ushered in Brazil’s current currency and ended years of hyperinflation, successive governments have presided over programmes designed to improve the incomes of poorer members of society.

And according to newly published research by the Getulio Vargas Foundation (FGV) think tank, poverty levels have fallen by 67.3% across the country in those 17 years.

The poor, as defined by the FGV, are those living on less than 151 reais (£56.95; $93.50) a month.

Both absolute and relative poverty have declined in recent years, especially in the past decade, during which the poorest 50% saw their incomes go up by 68%, while the richest 10% received a 10% increase.

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